The
strategic importance of diamonds became acutely clear
to both the Allies and Axis powers with the approach
of the Second World War in 1939. Only diamonds were
hard enough to stamp out the millions of precision parts
that were necessary for mass-producing airplane engines,
torpedoes, tanks, artillery and the other weapons of
war. Only diamonds could be used to draw the fine wire
needed for radar and the electronics of war. Only diamonds
could provide the jeweled bearings necessary for the
stabilizers, gyroscopes and guidance systems for submarines
and planes. Only diamonds could provide the abrasives
necessary for rapidly converting civilian industries
into a war machine. Without a continuing supply of diamonds,
the war machine would rapidly slow to a halt. Yet, nearly
all the diamond mines remained closed, and De Beers
controlled the world supply of diamonds. Obtaining these
industrial diamonds thus became a paramount objective
for both the United States and Hitler's Germany.

In Washington, D.C.,
the administration of President Franklin D. Roosevelt
began to hold emergency meetings about diamonds in 1940
when Hitler's armies swept across Europe in a blitzkrieg
and threatened to invade England. The possibility had
to be at least considered that England, like France,
might be overrun or surrender. In that event, the world
diamond stockpile would fall into Hitler's hands. Since
the United States had less than one year's supply of
industrial diamonds, the loss of De Beers' stockpile
would make it difficult, if not impossible, to continue
the war. The economic planners for the war estimated
that the United ,States needed at least 6.5 million
carats of industrial diamonds to convert its factories
to war production.

When apprized of this
critical shortage in diamonds, President Roosevelt ordered
the War Production Board, which had the responsibility
for mobilizing the American economy for war, to buy
the necessary 6.5 million carats from De Beers. De Beers,
however, had other interests to consider. Its entire
system for monopolizing diamonds depended on its controlling
the available stockpile. Transferring a large portion
of the stockpile from London to New York City, where
it would be out of its control, ran counter to the De
Beers logic.

Even though the Americans
persisted in the negotiations for the diamonds, they
found that Sir Ernest Oppenheimer personally opposed
any transfer of diamonds to the United States. He argued
that if the United States had its own stockpile, and
the war suddenly ended, it might release the diamonds
and undercut the entire world order that he had so laboriously
constructed. Moreover, he held that the United States
had sufficient diamonds for present needs, and that
De Beers would continue its delivery of diamonds to
American manufacturers on a monthly basis. In one letter,
he characterized the American demand for a stockpile
as "farcical."

The Americans were
dismayed by this intransigence. In an official Justice
Department memorandum, the War Production Board expressed
incredulity at the fact that "the leaders of the syndicate
are intentionally risking the war production of the
allies." President Roosevelt, disturbed by this development,
ordered the State Department to intervene directly with
Winston Churchill's war cabinet in London.

The State Department
found, however, that the British government was reluctant
to press De Beers to part with the diamonds. An investigation
by U.S. intelligence indicated that the division of
the British government responsible for acting on the
request was entirely staffed by former executives of
the De Beers "syndicate." In a secret memorandum, the
War Production Board noted, "The diamond section of
the government and the syndicate seem to be the same."*
After the Roosevelt administration had made continuing
efforts to persuade the British government that the
diamonds were of critical importance to the United States
war effort, it ordered the State Department to play
its trump card and threaten that the United States would
interrupt the supply f airplanes that was vitally needed
by the British to defend themselves against the Luftwaffe
bombing raids. According to a confidential report in
this Justice Department archive, dated April 16, 1942,
"It was said unofficially that we would not give planes
to England if the syndicate would not sell us the diamonds
with which to make them." This dramatic threat had the
desired effect. The British government pressed De Beers
to accommodate President Roosevelt, and De Beers yielded.

Oppenheimer agreed
to supply the United States immediately with one million
carats--14 percent of the American request---and deposit
an additional stockpile in Canada for the duration of
the war. This Canadian stockpile, which would remain
under De Beers control, was meant to mitigate the American
concern over the possible capture of the London stockpile.

The Roosevelt administration
was not entirely satisfied with this compromise. It
continued to apply pressure to the British government,
demanding that De Beers supply the additional 5.5 million
carats. By this time, the air of crisis had passed,
and De Beers was able to procrastinate successfully.
At first, it claimed that it did not have enough diamonds
in its vaults to supply this amount. Then, after U.S.
intelligence debunked this claim, De Beers advised that
its vaults were bombed shut" in an air raid on London.
A year passed. Then De Beers asserted that it needed
additional time to prepare an inventory of the diamonds
it had available.

By this time, American
officials feared that De Beers, despite the pressure
exerted on it, had no intention of allowing a diamond
stockpile of any magnitude to be established, even in
Canada. Moreover, manufacturers of. diamond tools in
the United States had begun complaining to the Office
of Price Control that De Beers had effectively raised
its prices as much as 60 percent through the device
of reducing the quality of the diamonds it delivered.
So, though the official price per carat remained the
same, manufacturers had to buy more of the lower quality
diamonds to build the tools and dies for industry. Since
it was exceedingly difficult for the price control officials
to measure the relative quality of industrial diamonds,
De Beers was able to persist in its claim that it had
not raised prices. In any case, the Justice Department
concluded that the De Beers monopoly, by manipulating
supplies from the stockpile, could impede the war effort.

The Justice Department
decided then to launch its own investigation into the
diamond monopoly. It had the full cooperation of the
War Production Board, which still wanted control of
the diamond stockpile, and the OSS, the newly created
U.S. wartime intelligence service. The Investigators
were not held back by any inhibitions about intercepting
mail, borrowing bank records or other such extralegal
measures. They all shared a common objective: helping
the war effort. In their roughshod manner, they soon
began turning up bits of evidence indicating that De
Beers had systematically stifled diamond mining in areas
of the world over which it could not exert control.
For example, intercepted letters from Oppenheimer's
associates suggested that litigation had been initiated
in Venezuela to prevent Nelson Rockefeller and other
Americans from developing diamond mines in that country.
One such letter detailed the possibility of competition
in Venezuela, and asked an intermediary to suggest to
Oppenheimer that he be "ruthless in stamping it out."
Another intercepted letter from a Belgian diamond executive
suggested that De Beers was intentionally exhausting
the diamond mines in the Belgian Congo, while preserving
its mines in South Africa, so that after the war was
over De Beers "will have complete control over the market.."
Justice Department investigators also looked into charges
that De Beers had conspired to buy out and shut down
potential diamond mining areas in the country of Guyana
and the state of Arkansas.

In Arkansas, it was
charged that after diamonds were found there, Oppenheimer
bought control of the company that was to mine the diamonds.
Then, when the separation plant built on the site failed
to produce a sufficient quantity of diamonds per ton
of ore to make the mine profitable, it was closed. Subsequently,
it was charged that the separation plant had been designed
by the engineer in such a manner that it could not possibly
retrieve diamonds. It emerged that the engineer was
in the employ of De Beers. The mine, which was bought
out by associates of Ernest Oppenheimer, was ordered
closed in 1921 after Oppenheimer met the mine officials
in New York, and the mine's records were ordered destroyed.
"An inference could be drawn . . . "the Justice Department
memorandum noted, "that the property was sabotaged and
then closed at the insistence of Sir Ernest Oppenheimer."
The evidence was admittedly highly circumstantial.

Whatever were the specific
tactics of De Beers, the justice Department investigators
reached the conclusion that the singular effect of these
efforts was to artificially restrain the production
of diamonds. This, in turn, produced higher prices.
A 1944 memorandum to the attorney general concluded,
"The United States is paying monopoly prices for an
essential material needed in wartime production." If
De Beers were an American company, the memorandum continued,
"There would be no question as to [its] having violated
the anti-trust laws." Since De Beers was a South African
corporation, the Justice Department had to demonstrate
that it had some jurisdiction over its activities before
it could consider prosecuting it.

The FBI was called
in to interview the leading diamond dealers in New York
to determine whether De Beers, which sold them diamonds,
could be construed as transacting business in the United
States. The FBI reported, "The domestic trade operates
in relative secrecy.... The syndicate will sell only
to a small group of hand-picked dealers." It further
noted that De Beers officials avoided coming to the
United States, and all transactions took place in London.
Further inquiry showed that De Beers had closed all
its bank accounts in the United States at the outset
of the investigation.

The assistant attorney
generals at the Justice Department who had superintended
the investigation realized that the antitrust division
had little chance of ever bringing De Beers to court
in the United States. Despite all the prodigious investigative
efforts, the case was abandoned in late 1945.

None of these documents
cast any light on the question of how Hitler continued
to obtain diamonds for the duration of the war. There
was, however, an investigation of this problem by the
OSS, the forerunner of the CIA.

According to a summary
of OSS documents, the OSS learned through its agents
in Germany that in November of 1943 Hitler had only
an eight-month supply of industrial diamonds. When these
diamonds ran out, Hitler's war machine would be crippled.
It would no longer be possible to build V-2 rockets
or other exotic weaponry. It was thus a crucial wartime
goal to prevent Hitler from replenishing his supply
of diamonds.

As all mines in South
Africa were closed, the OSS reckoned that there was
only one place on earth from which the Germans could
get industrial diamonds in sufficient quantity to maintain
their .military-industrial complex: the Belgian Congo.
The Belgian Congo was, however, administered by the
Belgian government in exile, which was in London and
completely under British control. The mines themselves
were supervised, and policed, by the De Beers syndicate.
In fact, when the justice Department began to move against
De Beers, the War Department objected on the grounds
that it might undercut the security system that De Beers
had developed in the Belgian Congo. In an exchange of
secret correspondence between the War and Justice Departments
(which was declassified under my Freedom of Information
request), it was argued by an official responsible for
maintaining the diamond blockade that "almost the entire
[diamond] production of Africa is policed through the
operation of elaborate controls extending through every
mining area of the continent." Further, De Beers, which
administered this program, sent "this controlled production
... in a closely guarded stream to London."

The OSS had determined,
however, that tons of diamonds were somehow reaching
Nazi Germany. If the De Beers system of "elaborate controls"
was as effective as the War Department held, how could
such enormous quantities of diamonds be regularly reaching
Germany? To answer this question, the OSS had proposed
sending its own undercover agents from its field office
in Accra to the Belgian Congo. Since the British Ministry
of Economic Warfare was responsible for allied activities
in the Congo, this OSS action had to be cleared in London.
At first the ministry blocked the request, and then
it had proposed a joint "diamond investigation." OSS
agents met with their British counterparts, but little
was done to pinpoint the source of the smuggling. Finally
the OSS chief in Accra reported to Washington, D.C.:

"We
have now come to the conclusion (a) that our assistance
was requested in this program so that the Diamond
Trading Corporation might discover how much we actually
knew of the ramifications of the De Beers world monopoly,
and (b) that the OSS/Accra recommendations for a Security
Committee were sabotaged, not by the British Government,
but by the representatives of the Diamond Trading
Corporation, Ltd., London, through their domination
of the Diamond Committee of the Ministry of Economic
Warfare."

As the OSS pursued the
investigation, it found that the diamonds were reaching
the Axis powers through Tangier and Cairo. Its agents,
posing as illegal buyers in these entrepots, found that
industrial diamonds were being sold for $26 a carat,
which was thirty times the official price. It became
increasingly clear that enormous profits were being
made on the millions of carats that were being smuggled
into Germany. Tracing their way back through the chain
of illegal sellers, an OSS agent code-named Teton reported
back from Leopoldville that "the major source of leakage
was the Forminiere Mines," which had been under the
control of the syndicate ever since they were developed.
According to the OSS report, Teton, pretending to be
an American official who had come to the Congo to register
"all American males of draft age," made highly productive
"contact" in Leopoldville and eventually turned up evidence
"that a full year's supply of diamonds had reached Germany
from Forminiere through Red Cross parcels." The shipment
of several million carats of diamonds through the parcels
that were regularly sent from the Congo to Nazi-occupied
Belgium required considerable organization and support
in the intervening areas.

Even though the investigation
was causing great concern in the diamond section of
the Ministry of Economic Warfare, Teton was ordered
by the OSS to continue following the leads he had developed.
Teton suspected that the Belgian police chief in Leopoldville
was involved in the massive smuggling operation, and
to test his suspicions he gave money to a Belgian citizen
to make illegal diamond purchases in Leopoldville. As
Teton suspected, the diamonds 'traced directly to the
police chief.

Before Teton could
follow the trail any farther, however, e Belgian citizen
was arrested by the police. The Belgian identified Teton
as his source for the funds, and Teton was declared
persona non grata by the governor general of the Congo,
and expelled.

It again seemed to
the OSS that British interests had stifled the investigation.

In February of 1944,
British and American intelligence officials met in Accra
to attempt to resolve the jurisdiction problem. Rejecting
the OSS idea of an "advisory commission" on diamond
smuggling, the British decided instead have a diamond
security expert and a mining engineer, bo of whom were
to be hand-picked by Sir Ernest Oppenheimer, conduct
a security study of the mine. Even though this self-serving
plan was never actually implemented, the OSS concluded,
"Thus the responsibility for security would have been
turned over entirely to the industry."

Nevertheless, it was
decided that British Intelligence would have the responsibility
for interdicting the flow of diamonds to the Nazis.
The OSS report noted that although this British intelligence
operation was initially "well-planned," it was unable
to cope with the Syndicate's control of the industry
and its dealing with the enemy."

The suggestion that
the De Beers-controlled syndicate was "dealing with
the enemy" was not accepted; or at least not acted upon
by the U.S. War Department. In a secret memorandum,
dated November 21, 1944, Patrick A. Gibson wrote Assistant
Attorney General Edward S. Stimson, "I suppose
that we could not make any allegation that the defendants
(De Beers) themselves have prevented effective control
of leakage of industrial diamonds to Germany. . . Any
theory of this nature would seem to depend upon supporting
action by some units of the British Government. Clearly,
the British government was not about to investigate
such a sensitive matter. It was therefore concluded
that it would be imprudent to "be involved in a controversy
of this nature." With the end of the war in 1945, the
OSS was dissolved, and the question of "dealing with
the enemy" was never resolved.

American servicemen returned from overseas and purchased
diamond rings for engagements that they had deferred.
To meet the new demand, De Beers re-opened its mines
in South Africa. The diamond invention had survived
the war intact.